How to choose the right short-term loan
Written by Robert Bester, Consumer Finance Expert Robert has been a writer for six years, specialising in consumer finance and the UK lending market. Concentrating on consumer credit products, Robert writes informative articles that help customers manage their personal finances efficiently.
23rd November 2020
4 minute read
Have you been thinking about applying for a short-term loan? Initially it’s worth confirming exactly how much you would like to borrow and how long for, before you start comparing interest rates, as this will help you in your decision-making.
There are a huge array of lenders available for this particular type of loan, so it can be difficult to narrow down your search, unless you use an eligibility checker such as moneymatcher. We’ve also put together some useful information below that will hopefully make your search a little easier. Continue reading to find out what you should be looking out for when searching for short-term loans online.
How to get best short-term loan for you
- Decide exactly how much you want to borrow – have a clear idea of exactly how you’re going to spend the loan. If it’s multiple items, add up the exact price to find out how much you need to borrow
- Decide how long it would take you to repay that amount – look at your past accounts and see how much spare cash you usually have on a monthly basis. If you don’t have any, you will have to reduce your outgoings if you are thinking of borrowing money
- Decide how much you would be willing to pay in interest on top – you might only get a clear idea of this by reading a few of the representative examples attached to loan offers, but it’s more about how much you’re comfortable with paying on top of your loan
- Decide whether you definitely need to borrow money – last but not least, do you really need to borrow in the first place? If you can wait until your next payday or have time to save up the necessary funds, you might not have to borrow money at all
Since there is a certain amount of risk with any borrowing, it’s important to make firm decisions before hitting that apply button. The more you stick to these decisions, the more likely you are to get the best loan for you.
Steps to consider
Getting a loan isn’t as simple as clicking on ‘apply’, especially if you want to safeguard your credit score. Try and keep to the following steps if you’d like to find the right loan offer for you:
- Check your credit report
- Check your eligibility using moneymatcher
- Start comparing short-term loans
- Consider any alternatives to short-term loans
- Pick the right financial product and apply
If you apply for a short-term loan straight away and are rejected, this will usually bring your credit score down slightly. Multiple rejections will harm it even further, so always try to follow the above steps prior to submitting an application.
Check the costs
Put simply, the longer you borrow money for, the more you will have to pay in interest. The associated cost with borrowing money, in the case of a short-term loan, is the interest you will have to pay on top. This is dictated not only by the interest rate, but also the agreed loan term.
In the case of a fixed-rate loan, these associated interest payments will be calculated at the start as an overall amount, with repayments being spread evenly across the time period you’ve agreed to borrow for. On the other hand, you could get a variable rate loan, where your interest payments might go up or down depending on fluctuations in the economy. These are less predictable but can be estimated to give you an idea of what you should be paying every month.
Find out more about short-term loan interest rates here.
Check the lender
When applying for a loan, you can also find out more about the lender themselves. This might include reading their specific terms and conditions attached to the loan offer, as well as finding out more about them as a company to see if other customers have had a good experience.
Since there are so many different lenders, it might be more efficient to choose the right loan product, and then check up on how reputable the lender is. If they make it straightforward and there aren’t any hidden charges you need to worry about, it can be a little more encouraging when you are getting closer to making your final decision.
You can browse through our selection of lenders by reading our provider pages here.
How quickly can you make repayments?
For a standard short-term loan, you’re likely to make your first payment a month after you’ve received the funds, though this can sometimes change. It might mean that you will make a repayment after a certain number of days, rather than once per month.
Depending on the lender you’ve chosen, they might stipulate whether you have to stick to a strict repayment schedule, or whether you’re able to make early repayments. If it isn’t included in the terms and conditions of your loan offer, you will sometimes have to ask permission from your lender to make early repayments instead.
How can I get a lower interest rate?
Unfortunately, because these loans are designed for those with a bad credit score, you will normally receive a high interest rate that will make your repayments more expensive than some standard personal loans.
One way you can try and get around this is to make the loan term as short as possible, so you don’t have enough time to accumulate interest.
The way to gain access to loans with a low interest rate would be to take steps to improve your credit score. This will allow you to apply for loans with better interest rates, and potentially for a larger amount of money. Improving your credit score comes in handy when you are thinking of taking out a mortgage as a first-time buyer, as you will have a better chance of being accepted by major lenders.
Should I apply for a short-term loan?
If you are still thinking about taking out a short-term loan, remember to check your eligibility using our free online comparison tool, moneymatcher. Alternatively, check out a few more articles on short-term loans: